We have recently received a lot of reader flak for advocating short positions for some popular solar stocks like Solar City (SCTY) and First Solar (FSLR). In this article, we present our opinion on one of the better managed solar companies - Renesola (SOL). The company was one of the first Chinese solar companies to get listed on a foreign bourse. However, Renesola started trading on the US stock exchange much later than many of its peers like LDK Solar (LDK), Yingli Solar (YGE) and JA Solar (JASO). The reason is that Renesola listed itself first on London's AIM exchange. Later on it delisted on AIM for a US stock listing. Renesola started out as a producer of solar wafers using polysilicon scrap but has now expanded to all parts of the solar silicon supply chain. The company is one of the biggest, completely integrated producers of silicon solar panels.
Renesola's Competitive Advantages
Low Cost Producer of Polysilicon and Wafers
Renesola is one of the lowest cost producers of polysilicon and solar wafers in the industry. The company has managed to substantially reduce its polysilicon cost over time and has reached a low 20 dollar range. Compare this to LDK stuck in the 30 dollar range. The company is building a new 10,000 polysilicon plant which will further reduce its costs to $18/kg by Q1 2013. This might not look like a great cost figure when compared to the current spot ASP of $15-17/kg. However, the important thing to remember here is that Renesola is building itself for the future.
For people who are wondering about the strange sounding title - Virtus is the brand name under which Renesola sells its high efficiency solar wafers and panels.
Renesola has managed to increase its marketshare in both solar panels and solar wafers in 2012. With investors focused on declining stock prices, the fundamentals have largely been ignored. Renesola has made dramatic share gains in solar wafers and is becoming a big solar panel supplier as well.
Complete Product Suite
The company has expanded into manufacturing micro inverters and wire saws. The company has also invested in the solar system business. From being a second hand poly wafer maker, the company has become a complete solar product seller.
Expanding into New Geographies
While most of its solar competitors like Suntech and LDK are focused on survival, Renesola is expanding its product offerings into newer, higher growth geographies like India and Australia. The company plans to start manufacturing solar panels in India and recently introduced its new micro inverter product in Australia.
Renesola has one of the better balance sheets amongst the Chinese solar companies. Despite being present in the capital intensive part of the supply chain, Renesola's debt/equity ratio is roughly equal to the average for the group. The company wisely used money earned during the 2010 solar boom, to reduce debt. Solar companies at that time were generally going crazy in expanding capacity.
Renesola's management has performed admirably in the last few years, despite the violent twists and turns of the solar energy industry. Sunpower (SPWR) and Canadian Solar (CSIQ) got embroiled in accounting scandals; Suntech got defrauded while Jinko Solar polluted a river. However, Renesola has not made any big blunder till date. They have also been conservative with both their balance sheet and customer acquisitions. Their guidance has sometimes been way off the mark, but very few have been right about solar supply/demand.
If you look at Renesola's stock performance in comparison to the general market then it is not a great picture. However, if you compare its stock performance to its peers, you can see that the market also appreciates the company's better fundamentals. We are listing out the stock's performance in the last one year compared to some of its peers. You will notice that it has significantly outperformed other solar stocks with the exception of Jinko Solar (JKS) and Canadian Solar . (Source Google Finance)
- Renesola: +16%
- LDK: -68%
- Suntech: -46%
- First Solar: - +3.5%
- S&P: 17.7%
- Jinko Solar: +38%
- Trina Solar (TSL): -34%
- Bailouts - The Chinese government has kept afloat bankrupt companies like LDK through repeated bailouts, preventing the industry from returning to a healthy supply demand balance. This has led to irrational pricing of solar products throughout the supply chain. The management of GT Advanced Technologies (GTAT) also referred to this problem while giving their 2013 guidance.
- Lacks Branding - Renesola brand of solar panels are relatively unknown in the industry. This is due to their late entry into the module selling space. This has resulted in a lower ASP for their solar modules compared to the bigger solar panel producers like Yingli
- Polysilicon Plant - Renesola is going ahead with a 10,000 poly plant construction despite a massive overcapacity of poly. Even the biggest and lowest cost poly companies like GCL are operating at 50% utilization.
Renesola's recent quarterly performance was bad like the other solar companies suffering from the global downturn. However the company has forecasted a return to positive GM in the next quarter. Renesola has also guided to higher shipments for both panels and wafers, which translate into greater global market share gains. Renesola has been one of the few solar stocks to show a positive return in 2012 and we expect a similar performance in the next year as well.